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Income Tax Act 2007

Recharacterisation of certain transactions - Recharacterisation of certain commercial arrangements

FA 2B: Stapled debt securities

You could also call this:

“Rules for company-issued debt securities attached to non-fixed-rate shares”

When a company issues a debt security that is stapled to a share, and that share isn’t a fixed-rate share, some special rules apply. The debt security is treated as if it were a share issued by the company. This means that any interest you would normally get from the debt security is treated as a dividend instead. Also, the company might not be able to claim deductions for costs related to the security.

For some specific purposes, the stapled debt security and the share it’s attached to are treated as a single share. This affects how they’re defined in certain parts of the tax law.

A debt security is considered ‘stapled’ to a share if you can only sell them together, and the company that issued either the debt security or the share is involved in this arrangement.

There are a few situations where these rules don’t apply. They don’t apply if the debt security is stapled to the share using a shareholder agreement for a company that isn’t widely-held. They also don’t apply if the debt security was stapled to the share before 25 February 2008.

In this context, a debt security is a financial arrangement that provides money to the company and would normally give the company a tax deduction. However, this deduction can’t just be because of changes in currency exchange rates or a set fee.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2546227.

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Money and consumer rights > Taxes
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Part F Recharacterisation of certain transactions
Recharacterisation of certain commercial arrangements

FA 2BStapled debt securities

  1. Subsection (2) applies when—

  2. a company has issued a debt security; and
    1. the debt security is stapled to a share in the company or to a share in another company; and
      1. the share is not a fixed-rate share.

        1. The stapled debt security is treated as a share issued by the company and—

        2. interest payable under the stapled debt security is treated as a dividend; and
          1. section DB 10B (Interest or expenditure connected to stapled debt security) may deny deductions for expenditure or loss related to the security.

            1. A stapled debt security and a share to which it is stapled are treated as a single share for the purposes of applying—

            2. the definition of non-participating redeemable share in section CD 22(9) (Returns of capital: off-market share cancellations); and
                1. the definitions, in section YA 1 (Definitions), of—
                  1. fixed-rate foreign equity; and
                    1. fixed-rate share, except for the purposes of subsection (1)(c).

                    2. In this section, debt security means a financial arrangement if—

                    3. the financial arrangement provides funds to the company; and
                      1. the financial arrangement gives rise to an amount for which the company would have a deduction but for this section; and
                        1. the amount does not arise only from either a movement in a currency exchange rate or a non-contingent fee.

                          1. In this section, a debt security is stapled to a share if—

                          2. the debt security can, or ordinarily can, be disposed of only together with the share; and
                            1. the arrangement that requires the debt security and the share to be disposed of together is an arrangement to which the company that issued the debt security or the company that issued the share is a party.

                              1. This section does not apply if the debt security is stapled to the share using a shareholder agreement for a company that is not a widely-held company.

                              2. This section does not apply if the debt security was stapled to the share before 25 February 2008.

                              Notes
                              • Section FA 2B: inserted (with effect on 1 April 2008), on , by section 202(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                              • Section FA 2B(3)(b): repealed (with effect on 30 June 2009), on , by section 202(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).